• Thursday, October 02, 2014

Deep Sea Gas

US firm for revised deal

5-7tcf prospect with only 17pc chance of success; $3-5b investment required

Sharier Khan

American company ConocoPhillips has found a prospect of 5-7 trillion cubic feet gas reserve deep in the Bay of Bengal, but its existing production sharing contract (PSC) with the government does not give it enough incentive to confirm discovery and supply of the gas.
It would take $3-5 billion investment to confirm and develop the gas prospect at site 350 kilometres off the Chittagong coast.
The PSC signed in 2008 does not justify taking so much financial and technological risk for ConocoPhillips to drill a well 1.5 km underwater, develop the field and deliver the gas in Chittagong by installing a long and tough pipeline, says a competent Petrobangla source.
There is only 17 percent chance of actually finding oil or gas in this prospective site that was identified through seismic surveys in deep sea blocks 10 and 11.

Due to such high cost and risk involvement, the company is asking the government to update its PSC in line with the government's 2012 model PSC and modify the terms and conditions for gas sale.
When ConocoPhillips signed its PSC, it was offered a gas price of maximum $4.5 per million cubic feet a day (mmcfd) in case it discovers gas and sells it to Petrobangla. The 2012 PSC has scaled up this price to $6.5 per mmcfd.
Besides, the company also wants this revised rate to be paid at well-head instead of having paid upon transmitting the gas onshore in Chittagong as per the PSC.
ConocoPhillips has pinpointed its prospect 1,500 metres under the water. From this depth, through remote controls, it would have to drill up to another 3,000-4,500 metres to find and confirm any discovery. A failure in this operation means all costs will have to be digested by the company.
The company wants a separate deal for gas transmission as the pipeline would stretch 350 km under the sea. If a separate deal is made, ConocoPhillips might get an extra $2 per mmcfd gas supply.
It has sought a separate deal for the pipeline, as installing it alone would account for 30 percent of the total investment for development of this gas field. In the Sangu gas field situated 50 km off the coast in shallow waters, installing the pipeline accounted for less than 10 percent of the total investment.
“Accepting these proposals would make the company take the risks, about which we have little idea,” said an official.
Such an operation is completely different from the offshore Sangu field, which is now dead, located 50 km off the Chittagong coast in less than 200 metres dept. British company Cairn that discovered, developed and operated the field most of the time had invested around $1.2 billion there, although it had less than around 400 billion cubic feet (bcf) gas.
The company has presented its proposal to the state minister for energy and the energy adviser and said it would not mind to walk out of Bangladesh if the government did not find any reason to modify the PSC.
The government has yet to respond to ConocoPhillips proposal.
It had also presented the high officials with a comparison picture of PSC in Myanmar where oil companies get between $6.85 per mmcfd at well-head in certain shallow water gas fields and $7.26 per mmcfd in others. This price at shore and at Thailand or China border ranges between $8.26 and $10.86 per mmcfd after transmission through hundreds of kilometres of pipeline.
Besides, PSC operators in Myanmar also enjoy a lot of freedom in selling gas to private consumers which is not offered in Bangladesh; plus the PSC operators in deep sea blocks get price formula linked to fuel oil without any cap and consumer price index escalation.
“But our context is different from Myanmar that does not have a domestic gas market. We have a growing gas market and perennial crisis. We are planning to import Liquefied Natural Gas (LNG) with per mmcfd costing between $14 and $18 to meet our domestic demand. Therefore, the government needs to think if it wants to revise its PSC or not to get offshore gas for $8-9 per mmcfd,” notes the Petrobangla official.
The country's biggest foreign investor is Chevron, which has discovered and developed three gas fields and is supplying half of the country's gas requirement. For such huge operations, it has so far invested $1.5 billion. But a single gas field development operation in the deep sea would beat this investment.

Published: 12:00 am Saturday, July 12, 2014

Last modified: 9:55 pm Saturday, July 12, 2014

TAGS: Chittagong government production sharing contract (PSC) US firm American company ConocoPhillips financial and technological risk

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